ABSTRACT
This chapter serves two purposes. First, it is a starting point for our analysis of firms. Starting with Chapter 6, we are going to examine industries where there are just a few firms. In such industries each firm has to take into account the actions and reactions of its competitors. This is where strategy comes in. But analysing strategy is complex, so we start in this chapter with two special cases where strategy does not come into play. This gives us an opportunity to introduce terms that will be used in subsequent chapters and it helps to put the subsequent material into perspective. A second purpose of the chapter is to provide a link back to introductory microeconomics courses. The two kinds of markets discussed in this chapter – monopoly and perfect competition – should be familiar to you from introductory microeconomics.
